Investment timing is the bread and butter of traders seeking to cream off a few points difference between buying and selling. But what of investors, looking to buy and hold over the relatively long term?
For those focusing upon the longer-term, timing investing is less critical.
What’sÂ your motivation?
The investor’s decision to buy or sell may spring from a number of reasons:
a)Â a gut feeling that market is lower/higher than it ought to be
b) having some money available to invest
c) needing some money to finance a particular commitment
In the case of a) remember that current market prices represent the massed intellect of the world’s financial community, albeit with a give-or-take factor (that can be quite significant, in the light of recent market volatility).
In the cases of b) and c) consider whether the market is really the best source or destination for the available/required funds. Weigh the market’s merits/demerits against the options, eg cash savings, loans etc.
The actual moment of making your investment can unleash a lot of emotion for investors, probably more so than for traders who may “pull the trigger” several times a day. Rather it’s something the investor may do several times a year.
Making the trade
The natural tendency is to watch the screen, trying to gauge the exact moment to hit the button. In reality it probably doesn’t matter too much; unless you’re extremely lucky you’re never going to get the absolute low/high. As an investor, you’re looking to hold the position for some time; its long-term benefits will far outweigh any pennies you mightÂ gain by precise timing.
If you’ve made a considered decision to invest, your decision has been made at current prices, or thereabouts. Set yourself a limit of what you think the stock (or other position) of interest is worth. If it’s something you really want, the limit will be close to current price. If it’s more speculative the limit might be further away. Most brokers accept limit orders (to buy/sell if/when the price hitsÂ your pre-determined value), so you can place your decision on auto-pilot. But keep it under review if it doesn’t execute – is it still on your wish list? Is the limit too high/low?
Finally, once you’ve bought/sold stop looking at the price for a few days/weeks. As soon as the deal is done you’ll inevitably think you’ve traded the wrong side of an all-time high/low, which is highly unlikely. In reality you’ve bought/sold your chosen stock at your chosen price.
For investors the bottom line is to concentrate on the bigger picture, ie are you happy to buy/sell at a broad price level, given the competing alternatives. If the answer is yes, go for it and don’t sweat the pennies.
Johnny is editor of personalmoneymanagement101.com, a simple and unbiased introduction to finance and investment for ordinary people to make the most of their money. Have your say on our blog